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enabling legislation this year, including Arizona, Indiana, Iowa, Kansas, Maryland, Michigan, Minnesota, Nebraska, New Jersey, New York, North Dakota, South Carolina, Texas, Utah, Washington, and West Virginia.

Question 12. Please provide the legal citations and a single paragraph description of all state laws which retard or prohibit HMO development.

Answer. A digest of state laws, containing specific legal citations has been prepared under contract with Aspen Systems Corporation. The primary document is well over 1,000 pages and is continually updated on a monthly basis. While it is not feasible to provide the complete study, specific citations from the digest can be made available upon request. Also see the answer to question 11. Question 13. Please submit copies of state laws which allow and encourage HMO development.

Answer. To date, five states have passed HMO enabling legislation-Tennessee, Florida, California, Pennsylvania and Utah. Copies of the legislation for all but Utah are attached. Utah's bill is not yet available.

[EDITOR'S NOTE.-Copies of legislation referred to may be found in committee's files.]

Question 14. How many people/enrollees are now being served by the fourteen operational HMOs now assisted by the Federal Government?

Answer as of 2/28/73 approximately 69,000 enrollees were being served by these 14 operational HMOs.

See Attachments I and II.

1.-HMO ENROLLMENT IN OPERATIONAL PROJECTS-PLANNING AND DEVELOPMENT GRANTS FUNDED THROUGH

HMOS/HSMHA

Region and project (operational date)

1. Rural Health Associates, Farmington, Maine (Feb. 1972).

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I. Rhode Island Medical Society Physicians Service, Providence, R.I. (May 1972). III. Geisinger Health Plan, Danville, Pa. (July 1972).

VI. Lovelace-Bataan HMO, Albuquerque, N. Mex. (Jan. 1973).

VI. New Mexico Health Care Corporation, Albuquerque, N. Mex. (Jan. 1973).

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2,654 900

IX. Hawaii Medical Services Association, Honolulu, Hawaii, (Feb. 1972).

IX. Medical Care Foundation of Sacramento, Sacramento, Calif, (July 1972)..

IX. South Los Angeles Community Health Plan (Lutheran Hospital), Los Angeles, Calif. (Jan. 1973)..

IX. Watts Extended Health, Los Angeles, Calif. (Jan. 1973)..

X. Group Health Cooperative of Puget Sound, Olympia, Wash. (July 1972)..

Total..

do..
Feb. 15, 1973

2,297

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II.-HMO ENROLLMENT IN OPERATIONAL PROJECTS ASSISTED THROUGH HMOS/HSMHA GRANTEES OR

CONTRACTORS

1. Penobscot Bay Medical Center, Rockport, Maine.

V. Ramsey County Hospital, St. Paul, Minn., Oct. 1972.

V. Medical Center Health Plan (St. Louis Park), Minneapolis, Minn., Dec. 1972.
V. Group Health Association of Northeast Minnesota, Virginia, Minn., Jan. 1973.

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Total..

4,913

1 Estimate.

Question 15. If all 110 HMOs now receiving planning assistance go into full operations, how many people will be served by these new HMOs?

Answer. Of the original 110 HMO projects funded by DHEW, several were for evaluation and technical assistance, with 84 projects for direct support of planning and development of individual HMOs. Of the 84 projects, 66 are currently active. We project that approximately 50 percent or 42 of 84 originally funded planning and development projects will reach operational status. If the average optimum enrollment for these plans is 30,000, then approximately 1.25 million enrollees would be served by these 42 plans. It should be noted that most plans do not expect to reach optimum enrollment for three to five years after becoming operational and many of these may not go operational for another one to two years. Thus, if the projections for average plan enrollment and numbers of plans reaching operational status are accurate, it will be between four and seven years before all of the 1.25 million enrollees are served on a prepaid basis.

Question 16. Please provide the total amounts, fiscal year by fiscal year of Federal aid to HMOs either in the planning or initial development or operational stages.

Answer follows:

HMO planning and development funds by fiscal year (no operational support provided)

Fiscal year:

1971

1972

1973

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Total

Question 17. Please submit a list of names, addresses, types of projects, and accomplishments of all prepaid group organizations or HMOs which have received Federal assistance.

Answer follows:

DHEW HEALTH MAINTENANCE ORGANIZATION PROJECTS

Project name and address

Type of project

Status

Higher Education Center for Urban Studies, 328 Park Ave., Bridgeport, Con.. Development.....
Rural Health Associates, Professional Bldg., North Main St., Farmington,
Maine.

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Active.
Operational.

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Mount Sinai School of Medicine, 5th Ave. at 100th St., New York, N.Y..
Montefiore Hospital and Medical Center (Dr. Martin Luther King, Jr., Neighbor-
hood Health Center), 111 East 210th St., Bronx, N.Y.

Nassau Medical Services Foundation, 1200 Stewart Ave., Garden City, N.Y.
Health Organization of Wyoming County, Warsaw, N.Y.
Genesee Region Health Planning Council, 311 Alexander St., Rochester, N.Y..
NY-Penn Health Planning Council, 306 Press Bldg., Binghamton, N.Y.
Medical Society of Delaware, Wilmington, Del..

Georgetown University Community Health Plan, 3750 Reservoir Rd. NW.,
room 402, Kober-Cogan Hill, Washington, D.C.

Community Health Association of Western Pennsylvania, IBM Bldg., 6th floor,
Pittsburgh, Pa.

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Geisinger Health Plan, Danville, Pa.

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Health Service Plan of Pennsylvania, 2050 West Chester Pike, Havertown, Pa..
South Philadelphia Health Action Council, Philadelphia, Pa.
Maryland Health Maintenance Committee, 1001 North Calvert St., Baltimore,
Md.

Philadelphia Department of Public Health, Municipal Services Bldg., room
540, Philadelphia, Pa.

Mon Valley Health and Welfare Authority, Eastgate 8, Monessen, Pa..
Association of American Medical Colleges, 1 Dupont Circle NW., Washington,
D.C.

American Association of Medical Clinics, P.O. Box 949, 719 Prince St., Alex-
andria, Va.

do.. Development-SRS. Generator..

Florida Health Care Plan, Inc., 330 North Clyde Morris Blvd., Daytona Beach, Development.......
Fla.

Operational.
Active.

Do.

Do.

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DHEW HEALTH MAINTENANCE ORGANIZATION PROJECTS-Continued

Project name and address

Bedford Medical Center, 2900 West 16th St., Bedford, Ind.
Detroit Medical Foundation, 3455 Woodward Ave., Detroit, Mich..
Detroit Health Facility, Detroit, Mich.

Columbus Health Care Plan, Inc., 4256 North High St., Columbus, Ohio.
Cuyahoga County Hospital, 3395 Scranton Rd., Cleveland, Ohio.
Marion Health Foundation, 300 Executive Dr., Marion, Ohio

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Planning/development....

Do.

Do.

Northeastern Ohio Health Care Foundation, 17 Colonial Dr., Youngstown, Ohio. Development....
Group Health Plan, Inc., 2500 Como Ave., St. Paul, Minn.

Resource/development... Do.
Lovelace Foundation for Medical Education and Research, 5200 Gibson Blvd. Development......
SE., Albuquerque, N. Mex.

Operational.

New Mexico Health Care Corp., 500 Oak St. NE., Albuquerque, N. Mex...... Planning/development... Do.
Hillcrest Medical Center, Tulsa, Okla.

Development..

Bexar County Medical Foundation, 202 West French Pl., San Antonio, T7x..----- _do...
El Paso County Hospital District, 4815 Alameda Ave., El Paso, Tex...
Galveston County Coordinated Community Clinics, P.O. Box 939, La Marque,
Tex.

Scott and White Memorial Hospital, Temple, Tex..

Tulane University, New Orleans, La..

Wayne Minor Neighborhood Health Center, 825 Euclid, Kansas City, Mo..
Dodge City Medical Services Corp., Dodge City, Kans.

AT and SF Memorial Hospitals, Topeka, Kans..

City and County of Denver, Department of Health and Hospitals, 8th and Development..
Cherokee Sts,, Denver, Colo.

Larimer Community Health Association, 1017 Robertson St., suite C, Fort
Collins, Colo.

Rocky Mountain HMO Inc., care of St. Mary's Hospital, 2525 North 7th, Grand
Junction, Colo.

San Luis Valley HMO, Alamosa Community Hospital, 201 Carson St., Alamosa,
Colo.

University of Colorado Medical Center, 4200 East 9th Ave., Deriver, Colo.
Metropolitan Denver Foundation, Denver, Colo....

Missoula Comprehensive Health Planning Council, Missoula, Mont
Blue Cross of North Dakota, 301 8th St., South, Fargo, N. Dak.

Development-HMOS/SRS.
Development.------

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Expired.

Active.

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Group Health of Arizona, 2121 East 1st Ave., P.O. Box 49229, Tucson, Ariz... Development..
Maricopa Foundation for Medical Care, 2025 North Central Ave., Phoenix, Ariz...
Contra Costa County Medical Service, 2500 Alhambra Ave., Martinez, Calif.
Foundation for Medical Care of Sonoma County, 1625 Franklin Ave., Santa....do_
Rosa, Calif.

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South Los Angeles Community Health Plan, 1423 South Grand Ave., Los.................do.
Angeles, Calif.

Development...

Expired.
Active.

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Group Health Cooperative of Puget Sound at Seattle, 200 15th Ave. East, Resource/development...
Seattle, Wash.

Active.
Operational.
Expired.
Active.
Do.

Question 18. Do you agree with the General Accounting Office's findings that: (a) HMOs result in a 20 percent reduction in hospitalization making 190,000 beds available for future needs;

(b) Reduced hospitalization of this magnitude means $2.85 billion savings in construction cost;

(c) HMOs greatly reduce use of surgical treatment techniques.

If you do not agree, please list your own best assessment of the probable effects of HMOs?

Answer. (a) and (b) HMO health care has been shown to meet the real needs of enrollees at a bed level of about 2/1,000 enrollees, compared to a national availability of about 4/1,000 persons. It is difficult to translate this ratio into excess available beds and into savings in construction costs because of the present uneven distribution of hospitals with respect to population. Furthermore

many hospitals are in urgent need of modernization, requiring construction dollars with no increase in bed capacity. It is clear that any given HMO will function at least as well as indicated in the questions, but it is misleading to apply such local data to the national situation without qualification.

(c) Regarding the reduction in the number of surgical procedures, a study conducted by George S. Perrott in 1968 confirms reduced use of surgery and reveals the following:

SURGICAL PROCEDURES PERFORMED, 1968 ANNUAL RATE PER 1,000 COVERED PERSONS, FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM (HIGH OPTION)

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1 It should be noted that group practice is one form of an HMO.

Source: Perrott, George S., "Federal Employees Health Benefits Program: Enrollment and Utilization of Health Services 1961-68." Health Services and Mental Health Administration; U.S. Department of Health, Education, and Welfare, May 1971.

Question 19. What is the total annual expenditure for health services? Of that total expenditure, what is now expended for care provided by public and private pre-paid group practice organizations?

Answer. Based on data supplied by the Office of Research and Statistics, Social Security Administration, the national expenditures for health care services in 1971 were $79.8 billion. The expenditures for all types of prepaid group and individual practice health care including dental care in 1971 were estimated at slightly over $1 billion, or approximately 1.5 percent of the national expenditures.

Question 20. In dollar amounts, what is your best estimate of the savings which would result from full development and operation of the 110 HMOs now receiving Federal aid for planning?

Answer. HMOs have consistently provided health services with a lower rate of hospital utilization than the fee-for-service system. This plus other operational features of HMOs have resulted in lower expenditures per consumer of medical services. For example, the Social Security Administration has reported that for the most part, total per capita reimbursement under Medicare was significantly less for those in prepaid health plans than for other aged persons residing in the same area receiving services from the fee-for-service system. The lower per capita reimbursement ranged among plans, with an overall savings estimated between 10-15 percent. Applying the more conservative number of 10 percent to the question at hand, the following would pertain :

Of the 110 projects funded by DHEW, several were for evaluation and technical assistance, with 84 projects for direct support of planning and development of individual HMOs. Of the 84 projects, 66 are currently active. We project that approximately 50%, or 42, of the 84 originally funded planning and development projects will reach operational status, with an estimated average optimum enrollment of 30,000. Assuming a 10 percent savings from a baseline of $300 per person per year, each HMO would save about $900,000 per year. The annual savings realized for the 42 HMOs at full operational status with optimum enrollment would then be $37,800,000.

Mr. ROGERS. Can Mr. Cohelan appear at 2?

The committee will stand in recess until 2 this afternoon.

[Whereupon at 12 m., the committee recessed, to reconvene at 2 p.m.]

AFTER RECESS

[The subcommittee reconvened at 2 p.m., Hon. Paul G. Rogers, chairman, presiding.]

Mr. ROGERS. The subcommittee will come to order to continue hearings on HMO legislation.

I am very pleased to have an old friend of the committee here who has served this time in Congress, knows how the processes work, and knows why it is important to put specifics in the law.

He also has great experience in group health and the HMO field, so we particularly welcome our old friend and colleague, Jeffery Cohelan.

STATEMENT OF JEFFERY COHELAN, EXECUTIVE DIRECTOR, GROUP HEALTH ASSOCIATION OF AMERICA; ACCOMPANIED BY HERMAN SCHMIDT, DIRECTOR OF FIELD SERVICES; MARTIN COHEN, CHAIRMAN, LEGISLATIVE POLICY COMMITTEE; DR. FRANK NEWMAN, PRESIDENT OF GHAA, AND PRESIDENT OF GROUP HEALTH COOPERATIVE OF PUGET SOUND; AND DR. JOHN G. SMILLIE, ASSISTANT TO EXECUTIVE DIRECTOR, PERMANENTE MEDICAL GROUP, OAKLAND, CALIF.

Mr. COHELAN. My name is Jeffery Cohelan. I am presently the executive director of the Group Health Association of America, an association representing the major prepaid group practice plans in the United States and Canada.

This morning I am accompanied by Mr. Herman Schmidt, our director of field services and Mr. Martin Cohen, chairman of our legislative policy committee, Dr. Frank Newman, president of GHAA, who happens to be in town for an executive committee meeting, and I am pleased to have with us Dr. John Smillie, of the Permanente Medical Group in northern California.

In the course of our discussions this afternoon, we are richly endowed with professional experience who can respond to a variety of your questions relating to practical operations and data in this prepaid group practice field.

Mr. ROGERS. We welcome all you gentlemen and are pleased you. found time to help the committee this afternoon.

Mr. COHELAN. I should like also to call to the attention of the members of the committee, especially the new members of the committee, to the very copious record developed in the last session of 92d Congress. In listening to the hearings this morning, I felt sure that Mr. Hudnut and his colleague, who have just joined the committee, will be enriched by a review of those excellent hearings.

The chairman very kindly devoted an entire day to the question of the actual experiences of operating plans throughout the United States, the economics and the objectives, and we were most grateful we could present such full data to the committee.

This afternoon we recognize the issues are somewhat narrower in light of the bill under review.

Let me go on describing some of the activities of Mr. Schmidt and Mr. Cohen. Mr. Schmidt is now heading an effort to organize the prepaid group practice form of HMO's in a number of communities throughout the Nation, which include working with community provider and third-party payment groups and also includes a program of rendering technical assistance to these groups.

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